BULLETIN: U.S. Bankruptcy Judge Melvin S. Hoffman has certified a defendant class-action lawsuit brought by TelexFree Trustee Stephen B. Darr against about 15,000 alleged TelexFree “net winners” in the United States.
Hoffman appointed alleged winner Frantz Balan as the putative class representative. The law firm of Milligan Rona Duran & King LLC will be class counsel. Class counsel will be paid with funds from the Trustee estate: up to $225,000 for legal fees and costs, and up to $87,500 for a class expert.
Balaan was a net winner of $516,875.00 and received $315,572.00 in net preference payments from TelexFree, Darr alleged. Balaan disputes those numbers, according to counsel.
Darr also is suing tens of thousands of alleged TelexFree international winners in a proposed class action. The international case hasn’t yet proceeded to the certification phase.
TelexFree created more than $3 billion in illicit transactions and hundreds of thousands of net losers, Darr has contended.
James Merrill, the alleged president of TelexFree, is scheduled to go on trial on 17 criminal counts next month. The trial initially had been set for October.
EDITOR’S NOTE: This story, which easily could be titled “What NOT To Do In MLM,” summarizes a few of the witnesses and exhibits the U.S. government may use against TelexFree’s James Merrill when his trial gets under way Oct. 24 in Massachusetts. The background provided below is based on research by the PP Blog. Prosecutors filed their witness/exhibit lists on Sept. 26 in U.S. District Court. For our Brazilian readers, we’ll note here that the United States is expected to call at least one member of the Brazilian Federal Police to testify. U.S. District Judge Timothy S. Hillman is presiding. In total, dozens of witnesses may testify, including some who have been sued by the SEC, TelexFree Trustee Stephen B. Darr or private attorneys. There are hundreds of government exhibits, some collected by the Massachusetts Securities Division and the U.S. Department of Homeland Security.
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EXHIBIT: The government may introduce a document filed by TelexFree with the Alabama Public Service Commission in March 2014.
BACKGROUND: This document potentially could be used to demonstrate Merrill lied to regulators and business consultants. It was filed on March 20, 2014, and asserts TelexFree was “financially qualified” to operate in the state as a telecom company and that its “current financials Show considerable net worth.”
Less than a month later, however, TelexFree filed for bankruptcy, raising questions about the truthfulness of its telecom applications in various states. The document, which the PP Blog published before TelexFree’s bankruptcy filing, also ties Merrill to Indiana MLM accountant Joe Craft, a former interim TelexFree executive listed Sept. 26 by the government as a witness. Craft was sued alongside Merrill and others by the SEC in April 2014. He later filed a pleading in which he said he had concluded TelexFree was a Ponzi scheme selling unregistered securities and that he had been misled by TelexFree insiders.
Joseph Isaacs, a Florida-based consultant for TelexFree, helped prepare TelexFree’s telecom filing in Alabama and other states. Isaacs also now is listed as a government witness. Filings in Missouri say Isaacs told regulators there that Merrill had not been truthful when submitting an affidavit.
EXHIBIT: The government may introduce a photo of Merrill posing with a Hummer vehicle in TelexFree promos.
BACKGROUND: Ponzi/pyramid schemes and flashy rides are virtually inseparable.
In 2014, a federal judge ordered TelexFree pitchman Santiago De La Rosa — an SEC defendant — to sell two BMWs and a Land Rover Range Rover. De La Rosa now is listed as a government witness.
EXHIBIT: The government may introduce a September 2013 email that shows Merrill was aware of a criminal indictment and prison term imposed against AdSurfDaily President Andy Bowdoin in a Ponzi case with remarkable similarities to TelexFree.
BACKGROUND: The email described above allegedly was sent to Merrill by MLM attorney Jeffrey Babener. Babener now is listed as a government witness. Darr, the bankruptcy trustee, has said Babener informed TelexFree in August 2013 that it was operating a pyramid scheme, but TelexFree nevertheless continued to gather money.
EXHIBIT: A video by Thomas More of Newport Beach, Calif.
BACKGROUND: The SEC has warned for years that scams spread on social media. More, now listed as a government witness, was a TelexFree pitchman who was listed as a “winner” in the Zeek Rewards Ponzi- and pyramid scheme. Nehra once was a speaker at a TelexFree event in Newport Beach.
EXHIBIT: Records from various banks and financial vendors for Merrill or TelexFree.
BULLETIN: (4th Update 7:23 p.m. EDT U.S.A.) Sann Rodrigues, a figure in the TelexFree Ponzi- and pyramid-scheme case, has agreed to plead guilty to a charge of immigration fraud, court documents say.
The agreement potentially puts the native Brazilian at risk of deportation and a U.S. prison term of up to 10 years. He last was reported living in Davenport, Fla.
Rodrigues, whose full name is Sanderley Rodrigues De Vasconcelos, initially was charged criminally with visa fraud in May 2015. The office of U.S. Attorney Carmen Ortiz of the District of Massachusetts said he was involved in “several pyramid schemes” and that he had obtained his green card fraudulently.
The SEC charged Rodrigues civilly with securities fraud over TelexFree-related activity in April 2014.
BULLETIN: At the request of Trustee Stephen B. Darr, U.S. Bankruptcy Judge Melvin S. Hoffman has extended the deadline to file TelexFree claims until Dec. 31, 2016, at 4:30 p.m. Prevailing Eastern Time.
The deadline had been Sept. 26.
Darr asked for the extension on Sept. 21.
Why was the extension needed?
“The Trustee has determined that, given the unique circumstances of these cases, an extension of the bar date is appropriate.,” Darr advised Hoffman. “These circumstances include the number of participants involved in the Debtors’ program, the geographical dispersion of participants throughout the world, language barriers, and the time that participants may need to complete the assembly of records and to seek assistance in completing the ePOC.”
About 80,000 claims had been filed through Sept. 20, Darr noted.
With a scheme such as TelexFree that affected hundreds and hundreds of thousands of people, it seems likely that many, many more claims could be filed.
UPDATED 1:05 P.M. EDT U.S.A. SEPT. 23 In April 2014, TelexFree declared corporate bankruptcy. Now, an alleged “key figure” in TelexFree being pursued by the court-appointed trustee has declared personal bankruptcy.
Jay Borromei of Opt 3 Solutions Inc. filed his petition Sept. 13 in U.S. Bankruptcy Court for the Central District of California, according to a new filing in the TelexFree bankruptcy case. Borromei, who resides in California, is requesting an automatic stay of TelexFree Trustee Stephen B. Darr’s April 2016 lawsuit against him and Opt. 3 in Massachusetts Bankruptcy Court for the return of more than $1.8 million.
Both Borromei’s bankruptcy filing and Darr’s adversary action against him demonstrate one of the often-ignored dangers of becoming involved in an MLM scheme that promises or suggests a return on investment: financial ruin and the emotional consequences of one court appearance after another in multiple jurisdictions.
Darr accused Borromei of aiding and abetting the TelexFree Ponzi- and pyramid scheme that affected hundreds and hundreds of thousands of people worldwide.
Specifically, Darr accused Borromei of helping shape TelexFree’s compensation plan and continuing to assist the company even after TelexFree’s Ympactus branch in Brazil was accused of operating a pyramid scheme in that country.
On July 13, Borromei notified the Massachusetts Bankruptcy Court that he and Opt3 “have been and continue to be in discussions with counsel to the Trustee regarding the claims in this action, and expect to continue those discussions over the next several weeks.”
No defense has been entered to Darr’s claims, and Borromei declared bankruptcy in California two months later.
BULLETIN: Dawn Wright-Olivares, the former COO of Zeek Rewards, has been sentenced to seven and one-half years in federal prison. The sentence was imposed by U.S. District Judge Max O. Cogburn Jr. of the Western District of North Carolina. The office of U.S. Attorney Jill Westmoreland Rose prosecuted Wright-Olivares for investment- and tax-fraud conspiracy.
Daniel Olivares, the stepson of Wright-Olivares and Zeek’s key programmer, also was sentenced today. Cogburn imposed a two-year prison term against Olivares, who was charged with investment-fraud conspiracy.
Both defendants had agreements with prosecutors and pleaded guilty in February 2014, more than two years in advance of the trial of Zeek operator Paul Burks. Burks, 69, was convicted by a jury in July 2016 on charges of mail fraud, wire fraud, conspiracy to commit both and tax-fraud conspiracy. No sentence date has been set.
Prosecutors said Zeek was a cross-border fraud that had gathered hundreds of millions of dollars operating over the Internet. Hundreds of thousands of victims were defrauded. Only TelexFree, another cross-border MLM “program,” may be larger when measured by the number of persons fleeced.
In addition to the criminal charges, Wright-Olivares, 48, and Olivares, 34, both of Clarksville, Ark., faced serious civil litigation from the SEC and from the court-appointed receiver in the Zeek case. The SEC accused them of keeping Zeek participants in the dark about a federal investigation and Zeek’s “imminent collapse” while accepting “substantial sums of money from the scheme.”
In the end, Wright-Olivares and Olivares ended up with nothing.
Before its August 2012 collapse in a pile of Ponzi rubble, Zeek tried to dupe people into believing they were not making an investment. Any number of current schemes are doing the same thing.
Among other things, the Zeek case shows that key executives aren’t the only people who risk prosecution for pushing online fraud schemes. In December 2015, the SEC charged alleged Zeek promoter Trudy Gilmond with fraud.
Separately, Kenneth D. Bell, the Zeek receiver, has been pursuing hundreds of millions of dollars in clawback claims against alleged net winners globally. Bell said he’d be in court today to present the sentencing judge letters from Zeek victims.
UPDATED 4:21 P.M. EDT U.S.A. With trial set to begin on Oct. 24, an eye-popping superseding indictment has been returned in Massachusetts federal court against TelexFree figures James Merrill and Carlos Wanzeler.
The indictment adds eight counts of engaging in monetary transactions in property derived from specified unlawful activity and includes a money-laundering forfeiture allegation.
Merrill and Wanzeler originally were indicted in July 2014, with the charging documents alleging eight criminal counts of wire fraud and one criminal count of wire-fraud conspiracy.
The original charges remain intact in the superseding indictment. With the new charges, Merrill and Wanzeler potentially face decades more in prison if convicted.
Wanzeler allegedly fled the United States in 2014 and is described by U.S. prosecutors as an international fugitive.
Merrill recently failed in efforts to suppress certain evidence gathered by the U.S. Department of Homeland Security.
TelexFree, alleged to be a cross-border pyramid and Ponzi scheme, may have generated more than $3 billion in illicit transactions.
“The threat did not explain now a negative review on BehindMLM could be any worse than a fawning sales pitch on MoneyMakerGroup. ‘Programs’ that have appeared on that forum have caused billions of dollars in losses globally.” — PP Blog, Sept. 5, 2016
TrafficPowerline, a “program” whose thread-starter at the MoneyMakerGroup Ponzi forum has more than 4,700 posts, reportedly is threatening BehindMLM.com because of a negative review. (More on the bizarre and sinister threat to artificially link BehindMLM to malware and porn below.)
The mere presence of TrafficPowerline on MoneyMakerGroup suggests tainted proceeds from any number of scams could be flowing to the emerging program. “proReflex” is the starter in a thread dated July 23. The post begins with the classic line of “I am not the Admin.”
MoneyMakerGroup is listed in U.S. federal court files as a place from which Ponzi schemes are promoted. Infamous schemes such as Zeek Rewards, AdSurfDaily, TelexFree and many others were listed there, contributing to a condition under which polluted money flows from scheme to scheme to scheme.
Donnelly, according to BehindMLM, demanded the review be taken down within 72 hours or else a “negative SEO” campaign against BehindMLM would begin.
Tools used against the well-known review site would include “SGA, Xrummer, Scrape BoX, SeNuke and other SEO tools at our disposal or from service providers to create thousands of low PR, PBN, PN, Porn, Link Farms and Malware site backlinks to your site along with teen-girl 10% free sex online 9% harmful for your computer 8% do not open this link 8% porn 8% adult content harmful 8% computer virus 8% dangerous 8%.”
The apparent TrafficPowerline aim is to artificially damage BehindMLM’s worth with Google and other search engines through fraudulently placed links.
Despite bizarrely claiming he was “nicely” requesting BehindMLM to kill the review and not issuing a threat. Donnelly reportedly went on to write that “I am fucking serious OZ do not fuck with me take down the fucking pages or I will make it my little project to fuck your site up.”
The threat did not explain now a negative review on BehindMLM could be any worse than a fawning sales pitch on MoneyMakerGroup. “Programs” that have appeared on that forum have caused billions of dollars in losses globally.
Sites sometimes have been known to overplay their hands when trying to bludgeon critics. KlearGear.com allegedly once threatened negative reviewers with a fine of $3,500. The site ended up getting sued by a public advocacy group.
Because the PP Blog today was able to access the TrafficPowerline website, it means the site is accessible in the United States — after the TrafficMonsoon case and the allegations of securities fraud and after California passed a law that backs consumers if companies try to strongarm consumers by limiting speech through nondisparagement clauses.
Traffic Monsoon pitchman Sunil Patel has promised “security” at a “Revolution Day” rally Saturday in the area of Brighton Beach/Brighton Pier in England to advocate for the alleged Ponzi scheme.
In a video post today on Facebook, Patel claimed the SEC has contacted him about the event.
The SEC this afternoon declined to comment on Patel’s claims and his public efforts to get Traffic Monsoon participants to sign a sworn “affidavit” that declares the agency a “third-party interloper.” The Sussex Police did not immediately respond to a PP Blog inquiry about the event. There may be scores of Traffic Monsoon victims in England, potentially setting the stage for trouble between supporters of the SEC’s action and supporters of the “program.”
Last month the SEC alleged that “more than 99% of Traffic Monsoon’s revenue is derived from new investor funds, making claims that it is a successful advertising business merely an illusion.” A federal judge imposed an asset freeze.
The SEC’s action against Traffic Monsoon and alleged operator Charles Scoville of Utah is the most recent of several major cases the agency has brought against “programs” that operate across borders. Others include TelexFree, Zeek Rewards and WCM777.
Combined, the schemes are alleged to have resulted in billions of dollars of illicit business. Some of the funds were fraudulently moved to the far corners of the world.
On Tuesday from Washington, the Justice Department announced that a money-mover in the Zeek case had been sentenced to 15 months in federal prison for obstruction of justice for fraudulently moving a pile of cash offshore. Jaymes Meyer, the operator of Preferred Merchant Solutions, was convicted on charges of trying to hide millions of Zeek dollars from the SEC, the court-appointed receiver and government investigators.
The SEC charged Zeek in August 2012.
Patel says that Traffic Monsoon participants from all over the world will attend Saturday’s Brighton event. How many of them will consult legal counsel before signing affidavits is unknown.
Many people in the antiscam community applauded Kenneth D. Bell, the receiver for Zeek Rewards, when he sued more than 9,000 individuals more than two years ago for return of their gains from the scheme. Those gains — more than $200 million — came from Ponzi proceeds, Bell alleged.
And he pointed out that the money rightfully should go to the hundreds of thousands of Zeekers globally who were “affiliate victims.” Court filings later would show that Zeek gathered on the order of $940 million in less than two years. Only TelexFree, another MLM HYIP scheme that was disintegrating when Bell announced his lawsuit against the Zeek “winners” in March 2014, may be bigger.
Thanks to the willful blindness and serial disingenuousness brought to you by serial MLM HYIPers such as Todd Disner, T. LeMont Silver and “Ken Russo,” huge class-action cases in which “winning” promoters of MLM securities schemes are named defendants now are a reality.
Bell, unfairly maligned among some MLM HYIPers and even some apparent “sovereign citizens,” deserves a lot of credit for trying to bring a measure of financial justice to the hundreds of thousands of individuals ripped off by Zeek and for establishing a sort of blueprint for how Darr could proceed.
This blueprint also is there in case the Traffic Monsoon receiver needs it. Traffic Monsoon, an alleged $207 million scheme, was broken up by the SEC last month. There already is evidence that Traffic Monsoon had promoters in common with TelexFree.
It is true that the number of potential defendants across the HYIP sphere is staggering. But it is equally true that the number of victims of these cross-border schemes is even more staggering. This number is in the millions. The global losses are in the billions. Absent actions such as those brought by Bell and Darr, however, there would be virtually no financial accountability. Society would be saying that it’s OK to profit through the promotion of online Ponzi schemes.
For years, the PP Blog has raised questions about the national-security implications of cross-border HYIP schemes. The narratives surrounding such schemes typically are bizarre, with anonymous Ponzi-board pitchmen typically beginning with “I am not the admin” of the “program.” It all goes recklessly downhill from there.
To those who feel a chill every time one of these schemes gains a head of steam, it came as no surprise that the alleged Zeek “winners” are arguing they should get to keep their hauls. It is simply the natural progression of the HYIP narrative.
Bell, a former federal prosecutor, is having none of this. Indeed, his is the voice of common sense.
From his argument (italics/bolding added):
Defendants still act as if Zeek was a legitimate business and Defendants were “internet marketing specialists” entitled to be paid as employees rather than investors in the scheme, all of which is of course pure fiction.
Specifically, Defendants ask the Court to absolve the scheme’s net winners from their obligation to repay the victims’ money because of an alleged “limitation” on the timing of future claims included in the scheme’s website’s “Terms of Service” (or “TOS”), which in any event do not limit the Receiver’s claims against Defendants. The Court should resist Defendants’ invitation to create the dangerous loophole of allowing a fraudster to use the terms implementing a Ponzi scheme to limit the right of a subsequently appointed Receiver to recover funds paid to the winners of the fraudulent scheme. While such a rule would be a great recruiting tool for future Ponzi scheme operators, it is surely an unacceptable legal rule and public policy.
Also, Defendants urge the Court to rule that by purchasing bids, posting online advertisements (which Zeek boasted would take only three to five minutes a day), and recruiting thousands of victims to the scheme, they provided “reasonably equivalent value” to ZeekRewards such that they get to keep the victims’ money that they won in the scheme. In other words, Defendants claim that those Defendants who spent the most time successfully promoting the scheme and multiplying the number of its victims should be given the most credit against the Receiver’s claims to recover their fraudulently transferred winnings. In fact, in arguing that they were supposedly rightly paid for their “services,” Defendants stretch to compare themselves to the utility company, which among many other differences does not invest money in their customers’ businesses hoping to share in compounding profits of 125% every ninety days.
UPDATED 1:15 P.M. EDT U.S.A. It has happened in previous cases involving alleged violations of federal securities laws, and now it’s happening with Traffic Monsoon.
“The Peiffer Rosca Wolf law firm is investigating Traffic Monsoon, LLC and Charles Scoville’s alleged Ponzi scheme on behalf of investors – whom Traffic Monsoon called ‘members,'” the firm said in a PR release today.
How the firm would proceed is unclear. The announcement, however, potentially means Traffic Monsoon and Scoville will be facing litigation on a front separate from the Ponzi case filed by the SEC on July 26.
Class-action attorneys also filed complaints in the TelexFree and Zeek Ponzi- and pyramid cases. Certain TelexFree-related actions alleged racketeering and referenced a “program” similar to Traffic Monsoon: My AdvertisingPays. There also were counts of fraud against TelexFree principals and some individual promoters.
Even if they don’t result in a recovery, the actions filed by private individuals — as opposed to government plaintiffs — force defendants to confront litigation on multiple fronts. Defense costs may soar.
“The Peiffer Rosca Wolf lawyers are preparing to take action and seek compensation on behalf of those who invested in the alleged Ponzi scheme orchestrated by Traffic Monsoon and Scoville,” the firm said.
Traffic Monsoon gathered at least $207 million, according to the SEC.
BULLETIN: U.S. Bankruptcy Judge Melvin S. Hoffman has certified a defendant class-action lawsuit brought by TelexFree Trustee Stephen B. Darr against about 15,000 alleged TelexFree “net winners” in the United States.
EXHIBIT: The government may introduce a photo of Merrill posing with a Hummer vehicle in TelexFree promos.
BULLETIN: At the request of Trustee Stephen B. Darr, U.S. Bankruptcy Judge Melvin S. Hoffman has 
UPDATED 1:05 P.M. EDT U.S.A. SEPT. 23 In April 2014, TelexFree 
TrafficPowerline, a “program” whose thread-starter at the MoneyMakerGroup Ponzi forum has more than 4,700 posts, reportedly is threatening BehindMLM.com because of a negative review. (More on the bizarre and sinister threat to artificially link BehindMLM to malware and porn below.)
